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Predictive Power of HSKAX
From DerailedCapitalism:
Earlier in the week we posted that Market-Neutrals were deleveraging,
we then further speculated that a market drop would soon follow as
liquidity disappeared and small sell block trades would move the market.
We received many emails from individuals asking for further explanation of this metric and why we feel it is a useful indicator to look at. While this is merely a theory with no empirical evidence,
we would like to display the following chart 2-year with daily closes
in which m/n's rapidly delevered days before a market drop. On all 5
occasions, the rapid decline in HSKAX was indicative of the S&P500 index experiencing further weakness.
Regardless
of the HSKAX predictive ability, it may be worth buying some puts when
the HSKAX experiences another wave of rapid declines.
Please email: info@derailedcapitalism.com for further questions or available charts.
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The chart is too small so you can't read the dates, this whole post is worthless, and same goes for the original on derailed capitalism, it's also too small.
If you're going to post something, at least make it so we can actually SEE it.
This is very interesting and a "sudden spike in the value of the greenback" says to me "this may be a global phenomenom." The interesting aspect of the 2008 collapse was a sudden dollar SHORTAGE which of course "was the exact oppostite of the problem during the Great Depression" which the democrats and BO kept comparing it too. Simply put "there was no dollar shortage during the GD" and "it wasn't until we were able to monetize the debt through a thing called World War II" that the weak dollar issues of that age were resolved. This time could not be any "more" different. We've been told we have massive "asset bubbles" everywhere--without one in real estate though? What if simply put "we have real pricing"? In short "we're right back to where we were in 2008 and a dollar shortage." That makes the greenback potentially a growth asset especially now that we know "the Federal Government is trying but failing" to severely limit the ability to lend in the commodity space by raising margin requirements. Well..."congratulations...the recession has ended." Raising margin requirements only encourages price increases as you are now "limiting liquidity" (the limited resource) at a time when the "underlying asset is suddenly becoming tremendously valuable." (silver) In short: "now is the time to start a corner in the silver market."
Hmm, interesting...Doing some quick off the cuff calculations it appears (going back to 2005 on a daily chart) that if you look for a 7 day price rate of change of more than -1.7% you do get out before a lot of the drops on the SPY. You would avoid the minor drop in August '07 to September '07. You would get out again 12/20/07 just prior to the big drop from 145 to 125. You would get out again 9/17/2008 right before the mega carnage then. You would get a false signal on 11/20/08 on the rebound from 75 to 90. Out again 2/27/09. 8/7/09 also gives a signal by my criteria that would be questionable. 4/30/10 gives an excellent signal getting out right before 120 to 105ish drop.
It appears looking for swift violent sell-offs is HSKAX can be predictive of future weakness in the SPY. For my purposes, a ROC of 7 day %age change of more than about -1.7% gives fairly good signals. Re-entry into the market could use moving averages, etc. I could not find a situation where HSKAX could give buy signals into the market.
I would post a chart of the above, but I don't believe I have that capability. thanks.
Biff
I usually do the pivot chart, convert it to a .png, and post it to Tinypic. Pretty easy breezy, and I'd love to see the chart.
While it didn't really "collapse" for the latter part of the summer, it didn't even go up until very late in the rally. The constant weakness over this period as the S&P rocketed higher speaks volumes in itself.
As posted on Zero Hedge before, HSKAX: Two Out Of Two In Crash Prediction
Good one
And the reason?
Yeah, but what this is more recently showing is that the ramped up Fed intervention has effectively broken this. It strikes me that the broken correlation will eventually right itself, but when? In other words, this strikes me as a longer term strat and not the short term strat it's being sold as.